by Calculated Risk on 2/04/2013 12:39:00 PM

Inventory declines every year in December and January as potential sellers take their homes off the market for the holidays - and then starts increasing again in February. That is why it helps to look at the year-over-year change in inventory.

According to the deptofnumbers.com for (54 metro areas), overall inventory is down 22.2% year-over-year in early February and up slightly from January (on a monthly basis).

This graph shows the NAR estimate of existing home inventory through December (left axis) and the HousingTracker data for the 54 metro areas through early February.


Click on graph for larger image.

Since the NAR released their revisions for sales and inventory in 2011, the NAR and HousingTracker inventory numbers have tracked pretty well.

On a seasonal basis, housing inventory usually bottoms during the holidays and then starts increasing in February - and peaks in mid-summer.  So inventory will probably increase for the next 6+ months.

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker reported that the early February listings, for the 54 metro areas, declined 22.2% from the same period last year.

The year-over-year declines will probably start to get smaller since inventory is already very low.

One of key questions for 2013 is Will Housing inventory bottom this year?. Since this is a very important question, I'm also tracking inventory weekly this year.

If inventory does bottom, we probably will not know for sure until late in the year.  Ben at Housing Tracker (Department of Numbers) has provided me weekly inventory data for the last several years and this is displayed on the graph below as a percentage change from the first week of the year.

In 2010 (blue), inventory followed the normal seasonal pattern, however in 2011 and 2012, there was only a small increase in inventory early in the year, followed by a sharp decline for the rest of the year.

Note: the data is a little weird for early 2011 (spikes down briefly).

The key will be to see how much inventory increases over the next few months. In 2010, inventory was up 8% by early March, and up 15% by the end of March.

For 2011 and 2012, inventory only increased about 5% at the peak.

So far in 2013, even with the slight decline last week (probably noise), inventory is already up 3.0%.  The next few months will be very interesting for inventory!

by Calculated Risk on 2/04/2013 11:11:00 AM

I was going to write about this since I'm asked about a "bond bubble" all the time - but Neil Irwin at the WaPo beat me too it: No, there probably isn’t a bond bubble

One peculiar legacy of the financial crisis is that, among the financial commentariat, there is a tendency to see a bubble whenever the market for a particular asset rises.

Yes - people see bubbles everywhere!

[N]o bubble fears are as widespread as the conviction that the markets for government bonds—in the United States in particular, but also in many other nations. It almost passes as a mark of seriousness to argue that Treasuries are the next big bubble to pop, the biggest in a long series that also included the stock market bubble of the late 1990s and the housing and mortgage securities bubble of the 2000s.

That kind of talk particular heats up whenever bond prices start to fall a bit, as they have in the last few weeks. (The phrase “bond bubble” appeared in major world publications included in the Nexis database 28 times in January—up from two in January 2012). And it is true that bonds have been in a remarkable 30 year rally, their prices climbing as interest rates have fallen almost constantly since the early 1980s.

It’s certainly true that bond prices could fall (and, conversely, longer-term interest rates rise). On balance, that is more likely to be for good reasons–because the economy is getting back on track–than for bad reasons, like inflation getting out of control.

But I’m not particularly worried that Treasury bonds are a bubble about to pop. Here’s why.

The first, and simplest reason to be skeptical of the bond bubble story is this: What defines a bubble is people buying an asset at ever-rising prices for speculative reasons, not based on the fundamental value of the asset, but because they are assuming somebody else will buy it at a higher price. I see no evidence of this behavior by buyers of Treasury bonds.

This reminds me of discussions we had back in 2005 about "what is a bubble"? Back then we were discussing the housing bubble (See: Housing: Speculation is the Key). Here is what I wrote about housing in April 2005:

I have taken to calling the housing market a "bubble". But how do I define a bubble?

A bubble requires both overvaluation based on fundamentals and speculation. It is natural to focus on an asset’s fundamental value, but the real key for detecting a bubble is speculation - the topic of this post. Speculation tends to chase appreciating assets, and then speculation begets more speculation, until finally, for some reason that will become obvious to all in hindsight, the "bubble" bursts.

With bonds, I don't see speculation, significant leveraged buying, "storage" or any of the other factors that defined a housing "bubble". I think Irwin is correct - there is no bond bubble, and when bond prices eventually fall (and interest rates rise) it will most likely "be for good reasons–because the economy is getting back on track".

by Calculated Risk on 2/04/2013 09:09:00 AM

CR Note: the following comments and table are from economist Tom Lawler.

This table is for many of the public home builders as of Dec 2012.

This shows that combined net order are up 37% compared to Q4 2011. As Lawler notes, the combined backlog is up 57.1%!

From Tom Lawler:

The combined order backlog of these companies at the end of 2012 was 26,638, up 57.1% from the end of 2011.

While not all builders comment on pricing trends, those that do have reported increased prices, “pricing power,” and/or lower incentives/price concessions.

As one builder noted, “being able to sell homes at a price that is higher than what it costs to build them is ‘sweet’.”

	Net Orders			Settlements			Average Closing Price
Qtr. Ended:	Dec 2012	Dec 2011	% Chg	Dec 2012	Dec 2011	% Chg	Dec 2012	Dec 2011	% Chg
D.R. Horton	5,259	3,794	38.6%	5,182	4,118	25.8%	$236,067	$214,740	9.9%
PulteGroup	3,926	3,084	27.3%	5,154	4,303	19.8%	$287,000	$271,000	5.9%
NVR	2,625	2,158	21.6%	2,788	2,391	16.6%	$331,900	$304,600	9.0%
The Ryland Group	1,502	915	64.2%	1,578	1,040	51.7%	$270,000	$254,000	6.3%
Standard Pacific	983	615	59.8%	973	782	24.4%	$388,000	$374,000	3.7%
Meritage Homes	1,094	749	46.1%	1,240	894	38.7%	$294,000	$275,000	6.9%
MDC Holdings	869	523	66.2%	1,221	792	54.2%	$318,700	$291,300	9.4%
M/I Homes	673	505	33.3%	887	667	33.0%	$273,000	$257,000	6.2%
Total	16,931	12,343	37.2%	19,023	14,987	26.9%	$285,300	$265,785	7.3%

by Calculated Risk on 2/03/2013 10:04:00 PM

Monday:
• At 10:00 AM ET, Manufacturers' Shipments, Inventories and Orders (Factory Orders) for December. The consensus is for a 2.2% increase in orders.

• At 2:00 PM, The January 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve. This might show some slight loosening in lending standards.

Weekend:
• Summary for Week Ending Feb 1st
• Schedule for Week of Feb 3rd

The Asian markets are green tonight with the Nikkei up 0.5%, and the Shanghai Composite index is up 0.4%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are up slightly and DOW futures are up 10.

Oil prices have moved up recently WTI futures at $97.58 per barrel and Brent at $116.62 per barrel. Gasoline prices are up 20 cents over the last couple of weeks.

Below is a graph from Gasbuddy.com showing the recent increase in gasoline prices.

If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 2/03/2013 02:32:00 PM

From the National Restaurant Association: December RPI declines due to softer sales, traffic

Due in large part to softer same-store sales and customer traffic levels, the National Restaurant Association's Restaurant Performance Index (RPI) declined in December. The RPI stood at 99.7 in December, down 0.2 percent from November, marking the third consecutive month in which the RPI stood below 100, which signifies contraction in the index of key industry indicators.

“Although restaurant operators reported softer same-store sales and customer traffic levels in December, they are cautiously optimistic about sales growth in the months ahead,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “However, operators remain decidedly pessimistic about the overall economy, with only 17 percent saying they expect business conditions to improve in the next six months.”
...
The Current Situation Index stood at 99.1 in December - down 0.7 percent from November and the lowest level in nearly two years. Although restaurant operators reported net positive same-store sales for the 19th consecutive month, December's results were much softer than the November performance.

Click on graph for larger image.

The index declined to 99.7 in December, down from 99.9 in November (below 100 indicates contraction).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month.

Earlier:
• Summary for Week Ending Feb 1st
• Schedule for Week of Feb 3rd